The 2017 Tax Reform Act included a provision for the designation of Opportunity Zones (OZs) in certain census tracts. These are areas that have not realized economic growth and are generally characterized by a persistent lack of new private investment.
Westminster submitted three census tracts, two in south Westminster including the Westminster Station and Harris Park areas, and the Downtown area. All three of the census tracts were designated by the US Treasury Department as OZs.
The Opportunity Zone program provides a tax incentive for investors to reinvest unrealized capital gains into designated census tracts. In Colorado, Opportunity Zones may help address a number of challenges:
- Promoting economic vitality parts of the state that have not shared in the general prosperity over the past few years
- Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
- Funding new infrastructure to support population and economic growth
- Investing in startup businesses who have potential for rapid increases in scale and the ability to “export” outside the state of Colorado
- Upgrading the capability of existing underutilized assets through capital improvement investments
Generally the incentive is a deferral, reduction and/or potential elimination of certain federal capital gains taxes. For example, U.S. investors currently hold trillions of dollars in unrealized capital gains in stocks and mutual funds. Some specific capital gains Incentives in Opportunity Zones include:
- No up-front tax bill on the rolled-over capital gain
- Reduction of tax on the rolled-over capital gain investment for long-term holding
- A 5 year holding increases the rolled-over capital gains basis by 10%
- A 7 year holding increases the rolled-over capital gain investment basis 5% for a total of 15%
- Investors can defer their original tax bill until December 31, 2026 at the latest, or until they sell their Opportunity Fund investments, if earlier
- Opportunity fund investments held in the fund for at least 10 years are not taxed for capital gains